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From the Mandated Health Benefits--The COBRA Guide, published by Thompson Publishing Group, Inc.

Dispute Over Termination Date Means COBRA Claim Proceeds

Kenneth Martin, an employee with Nationwide Mutual Insurance Co., took several leaves of absences due to job related stress. During a February 1999 leave, Nationwide informed him that he no longer qualified for leave, further disability benefits had been denied and he should return to work by March 9, 1999. Martin did not return to work, but continued to receive disability payments from Nationwide until June 1999. At that time, Martin alleged that Nationwide told him that he was terminated effective March 20, 1999.

Nationwide conceded that Martin -- and his disability payments -- should have terminated when he failed to return to work in March 1999. However, due to its administrative error of leaving Martin on the payroll for three more months, Nationwide said his termination was effective in June 1999, when he stopped receiving disability payments.

Although Martin's termination date was in dispute, the parties did agree that he received his COBRA notice on or about July 29, 1999.

But this raised another issue -- which termination date triggered the COBRA notice? Martin sued Nationwide for COBRA notice violations, arguing that because his termination occurred on March 20, 1999, the company did not provide a COBRA notice on a timely basis. (Under COBRA, an employer has 30 days to notify the plan administrator of a qualifying event, who then has 14 days to provide the qualified beneficiary with a COBRA election notice.) Based on Martin's argument, the COBRA notice should have been provided in early May -- not late July.

Nationwide reiterated that, in its view, Martin was terminated in June 1999. Based upon this argument, the COBRA notice would have been provided on a timely basis. Therefore, it sought a ruling in its favor.

However, the court determined that questions existed over the exact termination date. Therefore, it denied Nationwide's motion, and also noted that a ruling in Martin's favor was inappropriate.

Implications

Employers often find that ex-employees have remained on the payroll even after they are supposed to have been terminated. This type of administrative error can create several problems from a COBRA perspective. As the Martin case shows, one of the issues is whether a late COBRA notice has been provided. Another issue that could arise is determining when COBRA coverage is supposed to run -- for 18 months from: (1) the original date that was supposed to be the termination date; or (2) the date that the error is discovered and the ex-employee is told that he or she will be removed from the payroll. Employers should consult with benefits counsel to decide on the appropriate corrective action to take when such administrative errors occur.

Excerpted from the August 2001 supplement to Mandated Health Benefits -- The COBRA Guide, © 2001 Thompson Publishing Group, Inc. All rights reserved.

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